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Republicans seek to overturn CFPB small-biz lending rule; Georgia AG says rule is unnecessary and burdensome
Recently, several House Republicans introduced a joint resolution of disapproval (H.J. Res. 66) under the Congressional Review Act to overturn the CFPB’s small business lending rule. As previously covered by InfoBytes, last month the Bureau released its final rule implementing Section 1071 of the Dodd-Frank Act. Effective August 29, the final rule will require financial institutions to collect and provide to the Bureau data on lending to small businesses (defined as an entity with gross revenue under $5 million in its last fiscal year). Both traditional banks and credit unions, as well as non-banks, will be required to collect and disclose data about small business loan recipients’ race, ethnicity, and gender, as well as geographic information, lending decisions, and credit pricing. The final rule prescribes a tiered compliance date schedule, with the earliest compliance date being October 1, 2024, for financial institutions that originate at least 2,500 covered small business loans in both 2022 and 2023 (financial institutions with lower origination amounts have later compliance dates).
Also opposing the final rule, Georgia Attorney General Christopher M. Carr sent a letter to CFPB Director Chopra requesting that the final rule be rescinded. Carr argued that the final rule places an unnecessary and expensive burden on financial institutions, and that “[w]ith the current uneasiness in the market and a plethora of other challenges facing community banks, now is not the time to require them to gather more information that has absolutely nothing to do with the process of evaluating which applicants are the strongest and most deserving of capital.” Carr further contended that if lending discrimination is a “rampant problem,” the Bureau should use channels already in place to address this issue. Pointing out that states already have their own consumer protection and anti-discrimination statutes in place, Carr argued that the final rule imposes redundant compliance requirements on financial institutions, particularly community banks. Carr asked the Bureau to “allow states to continue to address lending issues as they occur, rather than saddling small businesses with burdensome regulations.”
Additionally, in April, a group of plaintiffs, including a Texas banking association, filed a lawsuit against the Bureau seeking to invalidate the final rule. (Covered by InfoBytes here.) Plaintiffs argued that the final rule will drive from the market smaller lenders who are not able to effectively comply with the final rule’s “burdensome and overreaching reporting requirements” and decrease the availability of products to customers, including minority and women-owned small businesses.
Minnesota enacts small-dollar consumer lending and money transmitter amendments; Georgia and Nevada also enact money transmission provisions
On May 24, the Minnesota governor signed SF 2744 to amend several state statutes relating to financial institutions, including provisions concerning small-dollar, short-term consumer lending, payday lending, and money transmitter requirements. Changes to the statutes governing consumer small loans and consumer short-term loans amend the definition of “annual percentage rate” (APR) to include “all interest, finance charges, and fees,” as well as the definition of a “consumer short-term loan” to mean a loan with a principal amount or an advance on a credit limit of $1,300 (previously $1,000). The amendments outline certain prohibited actions and also cap the permissible APR on a loan at no more than 50 percent and stipulate that lenders are not permitted to add other charges or payments in connection with these loans. The changes apply to loans originated on or after January 1, 2024. The amendments also make several modifications to provisions relating to payday loans with APRs exceeding 36 percent, including requirements for conducting an ability to repay analysis. These provisions are effective January 1, 2024.
Several new provisions relating to the regulation and licensing of money transmitters are also outlined within the amendments. New definitions and exemptions are provided, as well implementation instructions that provide the state commissioner authority to “enter into agreements or relationships with other government officials or federal and state regulatory agencies and regulatory associations in order to (i) improve efficiencies and reduce regulatory burden by standardizing methods or procedures, and (ii) share resources, records, or related information obtained under this chapter.” The commissioner may also accept licensing, examination, or investigation reports, as well as audit reports, made by other state or federal government agencies. To efficiently minimize regulatory burden, the commissioner is authorized to participate in multistate supervisory processes coordinated through the Conference of State Bank Supervisors (CSBS), the Money Transmitter Regulators Association, and others, for all licensees that hold licenses in the state of Minnesota and other states. Additionally, the commissioner has enforcement, examination, and supervision authority, may adopt implementing regulations, and may recover costs and fees associated with applications, examinations, investigations, and other related actions. The commissioner may also participate in joint examinations or investigations with other states.
With respect to the licensing provisions, the amendments state that a “person is prohibited from engaging in the business of money transmission, or advertising, soliciting, or representing that the person provides money transmission, unless the person is licensed under this chapter” or is a licensee’s authorized delegate or exempt. Licenses are not transferable or assignable. The commissioner may establish relationships or contracts with the Nationwide Multi-State Licensing System and Registry and participate in nationwide protocols for licensing cooperation and coordination among state regulators if the protocols are consistent with the outlined provisions. The amendments also outline numerous licensing application and renewal procedures including net worth and surety bond, as well as permissible investment requirements.
The same day, the Nevada governor signed AB 21 to revise certain provisions relating to the licensing and regulation of money transmitters in the state. The amendments generally revise and repeal various statutory provisions to establish a process for governing persons engaged in the business of money transmission that is modeled after the Model Money Transmission Modernization Act approved by the CSBS. Like Minnesota, the commissioner may participate in multistate supervisory processes and information sharing with other state and federal regulators. The commissioner also has expanded examination and enforcement authority over licensees. The Act is effective July 1.
Additionally, the Georgia governor signed HB 55 earlier in May to amend provisions relating to the licensing of money transmitters (and to merge provisions related to licensing of sellers of payment instruments). The Act addresses licensee requirements and prohibited activities, outlines exemptions, and provides that applications pending as of July 1, “for a seller of payment instruments license shall be deemed to be an application for a money transmitter license as of that date.” Notably, should a license be suspended, revoked, surrendered, or expired, the licensee must, “within five business days, provide documentation to the department demonstrating that the licensee has notified all applicable authorized agents whose names are on record with the department of the suspension, revocation, surrender, or expiration of the license.” The Act is also effective July 1.
On May 1, the Georgia governor signed SB 90 to, among other things, require disclosures in connection with commercial financing transactions of $500,000 or less. The amendments modify the existing state Fair Business Practices Act and apply to “commercial loans” and “commercial open-end credit plans.” The amendments define a “provider” as “a person who consummates more than five commercial financing transactions in this state during any calendar year and includes, but is not limited to, a person who, under a written agreement with a depository institution, offers one or more commercial financing products provided by the depository institution via an online platform that the person administers.” The amendments also establish parameters for qualifying commercial transactions and outline numerous exemptions. Specifically, prior to consummating a commercial financing transaction, a provider must (i) disclose the terms of the transaction as specified within the amendments, and (ii) include a description of the methodology used to calculate any variable payment amount and the circumstances that may cause a payment amount to vary. The provisions apply to any commercial financing transaction consummated on or after January 1, 2024. The amendments also address unfair or deceptive practices relating to brokerage engagements and is effective January 1, 2024.
On November 9, the OCC issued a proclamation permitting OCC-regulated institutions, at their discretion, to close offices affected by Tropical Storm Nicole in Florida, Georgia, North Carolina, and South Carolina “for as long as deemed necessary for bank operation or public safety.” The proclamation directs institutions to OCC Bulletin 2012-28 for further guidance on actions they should take in response to natural disasters and other emergency conditions. According to the OCC, only bank offices directly affected by potentially unsafe conditions should close, and institutions should make every effort to reopen as quickly as possible to address customers’ banking needs.
On May 2, the Georgia governor signed HB 891, which updates provisions related to licensing exemptions. The bill establishes that, starting on July 1, in addition to all other fees, license fees, fines, or other charges now or hereafter levied or assessed on the licensee, there is a fee of 0.125 percent of the gross loan amount. Further, such per loan fee becomes due on the making of any such loan, including, but not limited to, the closing of a loan, the renewal or refinancing of a loan, or a modification of a loan which results in the execution of a new or amended loan agreement. Additionally, the bill clarifies that the Department of Banking and Finance can issue cease and desist orders to persons that are not licensed. The bill also establishes that an individual cannot engage in the business of making installment loans or acting as an installment lender in Georgia unless that person is licensed. Among other things, the bill also makes conforming changes, provides definitions, and repeals conflicting laws.
On May 2, the Georgia governor signed SB 470, which amends state provisions related to mortgage lender and broker licensing. Among other things, the act: (i) defines a “covered employee” as “any employee of a mortgage lender or mortgage broker who is involved in residential mortgage loan related activities for property located in Georgia,” including but not limited to, “a mortgage loan originator, processor, or underwriter, or other employee who has access to residential mortgage loan origination, processing, or underwriting information”; (ii) adds “covered employee” to the list of persons for whom the Department of Banking and Finance may not issue a license or must revoke a license due to a felony conviction; and (iii) authorizes the Department to obtain conviction data with respect to a “covered employee.” The act is effective immediately.
On November 2, the U.S. District Court for the Middle District of Georgia granted the SEC’s motion for default judgement in its suit accusing a Georgia-based investment firm and three of its officers of defrauding investors out of approximately $3 million. In July, the SEC filed a complaint against the defendants for allegedly defrauding investors through a prime bank scheme by falsely promising that their funds would remain in a purported escrow account and earn lucrative returns without any risk of loss, which violated the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In its memorandum of law in support of its motion for default judgment, the SEC alleged that none of the defendants filed answers or responsive pleadings with the district court and had “engaged in egregious misconduct, acted with scienter, failed to admit their wrongdoing, were thoroughly dishonest with authorities, and have not demonstrated their financial means.” The district court granted the motion, approved permanent injunctions barring the defendants from committing future violations of securities laws, and required the defendants to return the investors' money with interest, in addition to the profits obtained through the alleged scheme. According to the order, the defendants are required to pay approximately $2.7 million total in disgorgement, exclusive of prejudgment interest, and pay a civil penalty of approximately $192,000.
On July 26, the Georgia Department of Banking and Finance (Department) announced that the Superior Court of DeKalb County entered an order granting default judgment against defendants for unauthorized banking activities and the unapproved use of the word “bank.” Under Georgia law, it is unlawful to conduct, advertise, or be affiliated with a banking business in the state without a bank charter. Georgia law also prohibits the use of the words “bank” and/or “trust” in any entity’s name without permission from the Department. In 2020, the Department issued a cease and desist order against the defendants after the Department determined that it had no records of the entity and had not approved it or the individual defendant to organize a bank and/or conduct a banking business in or from Georgia. Nor had the Department granted the entity defendant the ability to use the word “bank” in its name. The Department later discovered that the defendants violated the cease and desist order by continuing to engage in unauthorized banking activities and continuing to advertise using the word “bank” without approval. The court ordered the defendants to comply with the cease and desist order and permanently enjoined them from, among other things, using bank nomenclature and advertising or providing financial products or services from within Georgia without written authorization from the Department.
On June 29, the CFPB announced a stipulated final judgment and order against a financial services company and its owners for allegedly deceiving consumers into hiring the company. According to the complaint filed in the U.S. District Court for the Northern District of Georgia with the Georgia attorney general, the defendants violated the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Telemarketing Sales Rule, the Consumer Financial Protection Act, and Georgia’s Fair Business Practices Act by using telemarketing practices to deceptively induce consumers to hire the company, by, among other things, falsely promising to help them: (i) reduce their credit card debts by advertising to potential customers through direct mailers; and (ii) improve consumers’ credit scores by claiming they could restore their credit scores and that they had a “credit restoration team.” In addition, the defendants “collected millions of dollars in advance fees, claiming that it provided a ‘debt validation’ program that used the debt-verification process set forth in the [FDCPA] to invalidate and eliminate debt and improve consumers’ credit record, history, or rating.” Under the terms of the order, the defendants are banned from the telemarketing of any consumer financial product and selling financial advisory, debt relief, or credit repair services. The defendants must also pay a fine of $150,001, $15,000 of which will be remitted to the state of Georgia, and a penalty of approximately $30 million in consumer redress (full payment of which may be suspended if certain conditions are met).
On February 19, Georgia Governor Brian Kemp announced that Georgia has received $552 million from the federal government to implement a rental assistance program. The Georgia Department of Community Affairs will be administering the Georgia Rental Assistance program (subject to the still-developing U.S. Treasury guidelines), which will make payments directly to the landlords and utility providers of eligible individuals. To qualify for the program, a household must have:
- Qualified for unemployment benefits or experienced a reduction in household income, incurred significant costs, or experienced other financial hardship due directly or indirectly to Covid-19;
- Demonstrated a risk of experiencing homelessness or housing instability; and
- Have a household income at or below 80% of the Area Median Income (AMI), with priority given to: 1) households below 50% of the AMI, or 2) households with one or more individuals who have been unemployed 90 days or longer.
Payments are generally capped at 12 months of rent and utilities, but may extend to 15 under certain circumstances.